Bankruptcy code to be amended(TH)

Bankruptcy code to be amended(TH)

Context

The Union Cabinet has approved a proposal to promulgate an Ordinance to amend the Insolvency and Bankruptcy Code (IBC)

Objective

The move is intended to strengthen the IBC. It will

• Prevent certain persons from regaining control: Prevent certain persons — including wilful defaulters, disqualified directors, those who have indulged in fraudulent transactions as well as promoters whose account is classified as non-performing assets (NPA) beyond a prescribed duration — from regaining control of the defaulting company through the backdoor in the garb of a resolution applicant
• Ensure that promoters of defaulting firms are prevented from bidding for businesses that they ran to the ground in the first place.

What is IBC?

The IBC, passed in 2016, provides for an effective and robust legal framework for “time-bound insolvency resolution to release assets locked up in NPA and making the whole process of shutting down and exiting a business less time consuming and smoother

Operation of IBC

• Shifting of control: When a firm defaults on its debt, its control will shift to a committee of creditors.
• Specific timeperiod: The committee will have 180 days to evaluate proposals from various interested parties on how to either resuscitate the company or enable liquidation.
• Insolvency professionals: The code has provisions for the creation of ‘insolvency professionals’ who would handle the commercial aspects of the resolution process.
• Insolvency professional agencies will train and regulate these professionals.
• Debt Recovery Tribunal: The Debt Recovery Tribunal act as adjudicating authorities for individuals and unlimited partnership firms and National Company Law Tribunal for companies and limited liability entities.
• Insolvency and Bankruptcy Board of India will be the overall regulator